The 12 Biggest Ripoffs in America

Many of us feel ripped off in our day to day spending, so much so that bringing up even a single rip-off story in a group of people is likely to trigger a flood of them from everyone else. Whether it’s at the movies, in restaurants or on vacation, we seldom believe we are getting as much for our money as we ought to. Of course, some rip-off stories are more debatable than others. Often times, what is called a ripoff is little more than someone’s subjective opinion of what they “really” deserve for their money, whatever that means. However, other purchases actually do appear, by all objective criteria, to be a raw deal just about all the time. Today, BillShrink analyzes some common ripoffs as mentioned recently by CNN Money, that most of our readers are likely to be well acquainted with. [via billshrink]

Movie Theater Popcorn

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Movie theater popcorn is as much an American icon as baseball and apple pie. Like a moth to its flame, movie-goers instinctively load up on hot, buttery popcorn before sitting down to enjoy the show. It’s hard to imagine things being any other way. That being said, movie theater popcorn is without question one of the biggest, most egregious ripoffs around. ABC News reported in July 2008 that a small bucket of movie theater popcorn will run you “around $5.50 — more per ounce than filet mignon.” University of California-Irvine professor Richard McKenzie, who wrote a book on this very subject, conjectures that popcorn costs less than ten cents an ounce to produce. That makes the markup somewhere between 900%-1,300%! The reason appears to be that movie theaters do not make much money on actual ticket sales. According to McKenzie, “the theater can be paying 70 or more percent of the ticket price to the studios.” That leaves concessions, like popcorn and candy, as the next logical place to raise prices and recoup some of the revenue being sacrificed at the ticket counter.

Text Messages

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Another ripoff most of us would hate to go without is text messaging. According to Srinivasan Keshav, a computer scientist who testified before the Senate on the matter during summer 2009, text messages cost about one third of a cent each for a carrier to deliver. But despite that cost, the typical pay-per-text plan whacks cell phone users to the tune of twenty cents and ten cents per each outgoing and incoming text, respectively. That equates to an eye-popping markup of 6,500%. Nor do unlimited texting plans completely eliminate the ripoff factor, since the carrier’s overhead is likely to be right around the $10 or so that is usually charged for such plans. Most of the time, the carrier comes out ahead regardless.

College Textbooks

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College textbooks have the unique feature of being a ripoff on at least two different dimensions. First is the price charged to students. CNN cites a study by the Government Accountability Office showing that “textbook prices nearly tripled from 1986 to 2004 — a jump that’s twice the rate of annual inflation over the last two decades.” In fact, the average estimated cost of books and supplies in a given college year is $900, and many students report paying far more than that. However, it’s not just the actual price of the textbooks. In many college courses, the textbooks are never or seldom even used! Savvy college students have found that they can often glean the material needed from the Internet, or simply by looking on with a friend on rare days when the text is being used by the professor. It’s bad enough to be gouged at the checkout counter, but to rarely even use the textbooks takes the ripoff factor to new heights!

Branded Painkillers

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Brand name, over-the-counter painkillers like Advil are sold at a 60% markup, according to Yahoo! Finance. Many will no doubt counter this fact by objecting that yes, the price is higher, but the pain relief is superior. But this is incorrect. As Yahoo explains, the law requires all generic drugs to be just as effective (and even use the exact same active ingredients) as the branded drugs they are modeled after. Yet still, a 50 tablet bottle of 200mg Advil somehow costs $8.49, while Duane Reade charges “just $5.29 for the exact same bottle of generic ibuprofen.” So unlike the age-old “store brand” debate where there is a qualitative difference between a generic and branded product, painkillers are the rare exception of being, literally, the very same product for a lower price.

“Free” Credit Reports

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Admit it – you’ve found yourself humming one of those catchy commercials at least once or twice. But while the commercials are memorable, the service being offered – allegedly “free” access to your credit report – is an unmitigated ripoff. For one thing, it’s questionable that there is a need for any business to offer such a service, as the government mandates that all consumers can check their credit score once a year for free anyway. Beyond that, most of these services unwittingly bilk people into signing up for paid monthly subscriptions that actually charge them for what was supposedly being offered free. Time Magazine reported in November 2009 that the government went so far as to issue public warnings that and their ilk were not free at all. When you charge money despite the word “free” being in your corporate name, it’s tough to argue that your service isn’t a ripoff to consumers.

Wine Service at Restaurants

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This ripoff rests upon a shrewd appraisal of human psychology by bar and restaurant owners. Most people, when dining with a date, will never order the least expensive bottle of wine on the menu for fear of looking cheap. Instead, they will opt for the second least expensive wine to cover their bases. According to Time Magazine, “restaurateurs know this behavior well, and so they often put the heftiest markup on that second-cheapest bottle.” In fact, the cheapest bottle on the restaurant’s menu might actually cost more if you bought the same thing at a package store. The best course of action is deciding upon a wine that you objectively enjoy drinking (regardless of where you are) and order that without regard for the psychological pricing tactics of restaurants and bars.

Hotel Mini-Bars

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Anyone who has ever paid $2.00 for a minuscule bag of Doritos is already nodding their head in agreement. It’s true: hotel mini-bars are one of the biggest ripoffs around. Here, again, human psychology is taken into account by the hotel operators doing the pricing. Years of experience have demonstrated that the typical hotel guest is tired and weary from a day or more of traveling. Once they arrive, the last thing they want to do is get back into the car and drive around a strange new area looking for a convenience store. In fact, they are so loathe to venture out on the road that paying 1,300% more than usual for candy and soda starts to look like a decent idea after all. Rather than paying such inflated prices, just anticipate that you will want snacks in advance and stop off somewhere before checking in.

All You Can Eat Buffets

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All you can eat buffets thrive on an all too appealing sales pitch: pay once, eat all you want. It might seem difficult at first to find fault with such a generous offer. However, buffet operators do not offer that deal because they’re generous – they offer it because they know their numbers and study their customers. While the typical buffet charges somewhere between $12-$15, they know that that the average customer is not likely to eat very much more than they would’ve purchased for $7 or $8 at McDonalds, despite the fact that they can if they choose to. Furthermore, it’s questionable whether the quality of the food being served is much better than that of a fast food restaurant. Therefore, what often ends up happening is that a buffet’s customers pay for the ability to eat twice as much as they actually eat, on average.

Premium Gasoline

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This one is sure to draw the ire of at least a few auto buffs. For whatever reason, many people believe that filling up with premium grade gasoline is somehow “better” for their car, or even that it “cleans out the engine.” Others actually believe that it is essential to put premium gas in their car and that it will malfunction if you try to run it on anything less. For most drivers, nothing could be further from the truth. Just check your car’s owners manual. If you need to use premium gas for a legitimate, mechanical reason, it will be stated in the manual so many times that it will be impossible to miss. Luxury cars (like Cadillacs, for example) often require premium gas because their high performance engines require higher octane – that is, slower burning – fuel. But if your owners manual makes no mention of it, you are simply wasting money on each premium gallon you purchase.

Actively Managed Investments

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In his book I Will Teach You to Be Rich, personal finance blogger Ramit Sethi writes that “fund managers fail to beat the market 75% of the time.” Not only do they fail to beat the market, Sethi writes, “but they actually charge a fee to do this.” With such a lousy track record of performance, one might expect mutual fund managers to lower the fees they charge. Unfortunately, nothing of the sort is true. It is common for mutual fund managers to charge 1.5%-3% on however much money you invest into their funds. It might not sound like much, but a 2% expense ratio on a $10,000 portfolio means $200 out of your pocket at the end of the year. Index funds, on the other hands, have few or no fees and generally at least match (if not slightly beat) the overall market’s performance year in and year out.

In-Room Movies

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As if gouging you at the mini-bar wasn’t enough, hotels are also happy to help themselves to your money via in-room movie sales. While there’s certainly nothing wrong with offering such a service, the rates charged are hardly what one would call competitive – as much as $10-$15 for a single movie, according to CNN. A Redbox machine, by contrast, will rent you a DVD for as little as $1 a night. A NetFlix account isn’t much more expensive, and streaming movies on your laptop is another inexpensive alternative. In other words, paying for in-room movie service at a hotel is just about the most expensive way to watch a movie imaginable. As with snacks and soda, it’s smarter to anticipate that you will want to watch one before checking in and make less expensive arrangements.

Health Club Memberships

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While not every gym or health club membership is a raw deal, many of them are. In most cases, it’s not the price that’s unjustified but the terms of the contract itself. Bally’s Total Fitness, for instance, hides a clause in their contracts stating that you cannot cancel your membership – even if you lose your job and sincerely no longer wish to use the gym – unless you die or move to a town where there are no gyms. No exceptions are made. Consumer Affairs even reports that a man who provided “military orders sending me to Europe” was denied the ability to cancel his membership. A gym that insists upon charging someone money for a service they are not using and do not wish to use, even when they are given orders to leave the country for combat, is a ripoff in the purest sense of the word!

Printer Inks (Bonus Ripoff via BillShrink Readers)

Printer inks ripoffs

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You’re absolutely right, Shrinkage readers. How could we forget about the abominations that is printer ink — the bane of all consumer existence? As pointed out succinctly by the Oatmeal, and frequently noted by other people on the interweb, printer inks makes us want to scream in silent rage (especially during the checkout aisle at Office-Super-Max-Staple-Depot). Unfortunately for us, printer inks follow the tried-and-true razor blade marketing tactic of offering something at an hugely marked down price (printers) in order to sell something disposable, but needed continually, for a much higher markup price (printer inks).

Alternatives? We suggest finding a printer you can trust that has all the features you’ll need for years to come, and find a good alternative/generic brand ink cartridge set for that particular printer. You should note however that many generic brands may be manufactured from refurbished ink cartridges (there’s a huge industry for this), and at times, some generics or refilled ink cartridges may not work well. Always do your homework before you buy!

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